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Pozen

(POZN)

shares were getting crushed Tuesday after U.S. regulators rejected the company's migraine drug, MT100. Value-minded investors looking ahead to Pozen's next migraine drug in development, Trexima, might want to tread lightly, however.

The Food and Drug Administration issued a not-approvable letter to Pozen stating there was insufficient efficacy data to support the approval of MT100 as a treatment for migraine headaches. A safety concern also was raised by regulators.

Pozen shares were recently down $3.95, or 40%, to a 52-week low of $5.90, with more than 6.3 million shares already exchanged vs. the 30-day daily average of just under 317,000.

Pozen CEO John Plachetka, speaking on a conference call, said the company was "extremely surprised and disappointed by the

FDA's action," adding that the company intends to meet with the regulatory agency soon to fully understand its concerns.

Others were not surprised by the news, including a fund manager, quoted

here on April 12, who was shorting Pozen in anticipation that the FDA would reject MT100. Independent Research Group biotech analyst Jason Zhang also made the right call on Pozen and MT100, which he downgraded on April 6 to neutral from buy. Independent Research Group, which doesn't have a banking business, is a subsidiary of

TheStreet.com

(TSCM)

, the publisher of this Web site.

If Pozen can't get MT100 back on track, the company will move on to its next migraine drug under development -- another combination pill dubbed Trexima, formerly known as MT400.

With Pozen now valued at a bit less than 2.5 times its $72 million cash position, the company might look attractive to value investors who believe the market is totally ignoring Trexima's value. But be careful because some of the issues that knocked down MT100 also might imperil, or at least significantly delay, Trexima.

Trexima combines Imitrex, the leading migraine headache drug marketed by

GlaxoSmithKline

(GSK) - Get Report

, with naproxen, an over-the-counter pain reliever and anti-inflammatory drug. Naproxen is probably best known as the brand name Alleve and was one of the two active ingredients in MT100.

Pozen is co-developing Trexima with Glaxo, and last month the two companies announced the start of the phase III clinical trial program.

For a combination pill to receive approval, the FDA requires a drugmaker to conduct two successful phase III studies showing that the drugs combined are superior to both the individual drug components and a placebo. This was the hurdle that MT100 couldn't get over, and Zhang believes Trexima may have the same problem, especially when it comes to showing that Trexima can keep patients pain-free for 24 hours, compared with Imitrex alone.

"I have seen no data that suggests Trexima is better than Imitrex," said Zhang, who is keeping his neutral rating on Pozen.

The aforementioned short-seller, who requested anonymity, also doesn't see much to like in Trexima. Even if it does get approved, the drug's value will be diminished by Imitrex losing patent protection in 2007. Generic forms of Imitrex, sold cheaply, likely will keep some doctors and patients away from Trexima, which will be priced at a premium.

Pozen also might be issuing unrealistic guidance for the completion of the two 1,000-patient phase III studies it will run for Trimexa. The company says the studies should be finished at the end of 2005, but it took much longer for the company to run its two phase III studies for MT100, and they didn't enroll as many patients.

Last, investors shouldn't forget that Pozen management has tried to get two migraine drugs approved in the U.S. and failed both times -- MT300 was rejected last year. Pozen, not Glaxo, is responsible for directly overseeing the clinical development of Trexima.

"Trexima appears to have some value, but how many times have we heard that from Pozen?" asked a skeptical Zhang. "Management has a serious credibility issue with investors, and that needs to change."

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Pozen to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback.